In its Medium-Term Oil Market Report, the IEA said worldwide crude production will likely realign with global demand in 2017, but the global oil inventory will not see its first annual decline until 2018 as the market slowly burns through record amounts of crude oil investors have put in storage.
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The International Energy Agency (IEA) report said output from United States shale operations would be some 600,000 barrel per day lighter over the course of 2016. By then, oil prices should rebound as supply and demand converge.
The IEA report cautions about the potential risk of an oil price spike in the 2017 to 2021 timeframe “arising from insufficient investment” as many oil producers around the world seek to combat low oil prices by cutting costs and laying-down rigs.
On Monday, US benchmark West Texas Intermediate (WTI) for delivery in March was up US$1.07 at US$30.71 a barrel, while Brent North Sea crude for April delivery advanced US$1.33 to US$34.34 a barrel compared with Friday’s close. That’s significantly lower than the 11 million bpd added in the six-year period ending in 2015.
This series of oil-positive developments provided a glimmer of hope that crude could possibly overcome its now rampant oversupply problem, weather the specter of potentially waning global demand, and rise further from its multi-year lows.
At current crude prices the IEA estimates that oil export revenue for OPEC as a whole will drop this year to $320 billion from a peak of $1.2 trillion in 2012 and $500 billion last year.
Non-OPEC oil supplies dropped sharply in December by 650,000 barrels a day to 57.4 million a day, the IEA reported in January.
A falling rig count in the United States which is expected to lead to a decline in 2016 production helped support prices, analysts said.
Meanwhile, Saudi Arabia, Russia, Venezuela and Qatar have discussed freezing production if other oil countries go along with a strategy to boost prices. The global crude market would require a cataclysmic supply disruption from a war or similarly “bad event” before prices would jump, he said. A high oil price would increase the pressure on alternative energy sources.
In the EU, Japan and Korea, oil demand from the petrochemicals industry is expected to be essentially unchanged “as those regions experience weak domestic demand and relatively high feedstock prices” in the way of costlier naphtha. Indian consumption races ahead as more motorists take to the roads, while Chinese demand growth cools in tandem with the economy.
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Spending on new output will fall by 17 percent in 2016 after a 24 percent collapse last year, mostly in the U.S. As a result of the cuts, the agency lowered its estimates for non- OPEC supply for each year except 2016, with Russian supply set to suffer the steepest decline in the period.
